… because it doesn’t go far enough!
Economists have found that most of the benefits of subsidized federal student loans went to colleges, which used the money to overpay administrators (how do we know they’re overpaid? look at the quit rate!).
Colleges seem to charge students however much they think a family can cough up. When the Feds added guaranteed and/or subsidized loans, colleges just raised their prices. Students did not receive a better education because they paid more. The extra money was used for more administrative bloat and higher salaries for existing administrators.
Instead of merely forgiving student loans that haven’t yet been paid off, what would be fair is if the government admitted this was a welfare scheme for universities and, in addition to forgiving unpaid loans, refunded all payments made under these ill-advised programs.
Readers: Is it time to admit that the government helped universities fleece American families and give back the stolen money?
- “How Unlimited Student Loans Drive Up Tuition” (Forbes, 2017)
- “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs” (New York Fed, 2015-2017): “We estimate tuition effects of changes in institution-specific program maximums of about 60 cents on the dollar for subsidized loans and 15 cents on the dollar for unsubsidized loans. The subsidized loan effects are robust to placebo tests and the inclusion of a large number of additional controls. Consistent with the model, we find that even when universities price-discriminate, a credit expansion will raise tuition paid by all students and not only by those at the federal loan caps because of pecuniary demand externalities.”